Sector Playbook for Persistent Tariffs: Stocks to Buy, Avoid, and Hedge

When Tariffs Don't Go Away: A Practical Playbook for Investors (2026)

Hook: If persistent tariffs are adding unpredictability to your portfolio, you need more than opinion — you need a playbook. In early 2026, with trade policy still elevated after the tariff bouts of 2024–25 and inflation proving sticky into late 2025, investors and traders must re-allocate, hedge, and position tactically across sectors, assets and option structures.

Executive summary — Quick takeaways

• Winners: Domestic steel & materials, nearshoring beneficiaries, select logistics providers, certain industrial automation and defense contractors.
• Losers: Import-dependent retailers, low-margin consumer products, offshore manufacturing-heavy semiconductors, and airline/snapping global supply routes.
• Hedge toolkit: Options on sector ETFs (protective puts, collars), covered calls on winners, put spreads on vulnerable names, TIPS and commodity exposure (steel, copper), and FX hedges for supply-chain currency risk.
• Portfolio sizing rule: Convert top-line exposure into notional dollar risk and hedge 20–50% depending on conviction and liquidity.

Why persistent tariffs matter for markets in 2026

Tariffs effectively act like a tax on cross-border trade. When they persist, they do three things that change asset prices: they raise input costs for importers, create pricing power for protected domestic producers, and distort global supply chains toward nearshoring and onshoring. Coming out of late 2025, the U.S. economy remained resilient despite elevated tariffs and inflation — but that resilience masks winners and losers at the sector level. This playbook translates those structural shifts into concrete instruments and option strategies.

How to read this playbook

For each sector below you'll find: why tariffs change the risk/return profile, specific equity/ETF instruments to consider, and practical options strategies to express or hedge views. All option examples assume basic familiarity with strike selection, expiration choice, and position sizing; where possible we recommend using liquid ETFs to keep spreads tight.

Sector-by-sector playbook

1) Steel & Basic Materials — Tariff winners

Why: Tariffs on imported steel/aluminum increase domestic pricing power and margins for U.S. producers. Infrastructure spending and nearshoring trends in 2025–26 amplify demand.

• Equity picks/ETFs: Nucor (NUE), Cleveland-Cliffs (CLF), Steel ETF XME, Materials ETF XLB.
• Commodities: Physical steel-related contracts, scrap metal plays; copper and aluminum also deserve attention if tariff policy expands. See also commodity and metals dealers for tradeable alternatives like specialty precious/industrial metals instruments.
• Options strategies:
  • Buy-and-hold: Purchase shares and sell monthly OTM covered calls (generate yield while capturing upside). Example: own 1,000 shares of NUE and sell 10–12 delta calls 30–60 days out to collect premium.
  • Buy protective put rather than sell calls if avoiding upside cap: Buy 3–6 month puts 10% OTM to insure against downside while capturing upside growth.

2) Manufacturing & Heavy Equipment — Mixed, tilt to winners

Why: Domestic machinery benefits from reshoring and higher local content requirements, but OEMs with large imported BOMs see margin pressure.

• Equity picks/ETFs: Caterpillar (CAT), Deere (DE), Industrial ETF XLI, Manufacturing/Equipment ETFs (ITA).
• Options strategies:
  • Directional: Bull call spreads on CAT or XLI when you expect contract backlogs to translate to revenue; reduces premium outlay and caps upside.
  • Hedging supply-cost risk: For OEMs with import content (e.g., consumer appliance makers), buy 4–6 month protective put spreads to limit cost-shock risk more cheaply than long puts.

3) Logistics & Shipping — Tactical long, watch volatility

Why: Persistent tariffs reroute freight flows and increase logistics margins in the medium term. Freight companies and container lines often have the pricing power to reprice routes.

• Equity picks/ETFs: FedEx (FDX), UPS (UPS), ODFL (Old Dominion), Transport ETF IYT, shipping plays like ZIM (selective and higher beta).
• Options strategies:
  • Buy calls or call spreads on IYT/FDX if you expect sustained higher freight rates.
  • For income: Buy shares and sell short-dated calls to monetize elevated volatility; alternatively use collars if you want downside protection.

4) Semiconductors & Electronics — Winners and losers within the chain

Why: Tariffs hurt assembly and packaging that rely on cross-border inputs, but they accelerate onshoring of advanced manufacturing. Capital equipment providers and domestic chipfoundries can be winners.

• Equity picks/ETFs: Equipment names (Applied Materials AMAT, Lam Research LRCX), equipment ETF (SOXX or SMH for broad exposure), ASML for lithography exposure (non-US but benefits from onshoring spending).
• Options strategies:
  • Buy long-dated calls on AMAT/LRCX to play capex cycle tied to onshoring.
  • Hedge consumer-electronics exposure with put spreads on retail-focused semiconductor assemblers if you expect margins to compress.

5) Consumer Retail & Staples — Clear losers, defensive hedges

Why: Retailers dependent on low-cost imports (apparel, electronics) face margin pressure. Staples can pass through costs but may underperform discretionary names in growth terms.

• Equity picks/ETFs to avoid/short: Broad retail ETF XRT (short/hedge), import-heavy retailers like certain specialty apparel chains (use single-name analysis).
• Hedges and options:
  • Buy put spreads on XRT or high-exposure names with 2–4 month expirations to cost-effectively protect against sales surprises.
  • Use short-dated protective puts on individual names around earnings windows; convert to collars (sell OTM calls) if you want to offset premium.

6) Nearshoring & Mexico-linked manufacturing — Structural winners

Why: Persistent tariffs and policy incentives push firms to relocate production to Mexico or U.S. border states. That helps Mexican manufacturing stocks and sectors exposed to cross-border services.

• Instruments: iShares MSCI Mexico ETF (EWW) for a trade on manufacturing investment flows; select Mexican-listed industrial exporters.
• Options strategies: Use call spreads on EWW or buy call LEAPS if you expect multi-year reallocation trends.

7) Financials & Credit — Watch loan margins and risk premia

Why: Higher input costs and trade uncertainty can lift corporate spreads in cyclical industries. Banks with strong commercial lending in manufacturing hubs can pick up business.

• Instruments: Regional bank ETFs (KRE) to capture localized gain from onshoring; preferreds and senior bank debt remains sensitive to economic health.
• Hedges: Buy short-dated protection in IG/ HY credit via credit ETFs (HYG/ LQD) using put spreads or inverse ETFs for tactical hedges during escalation windows.

8) Commodities, TIPS and Bond plays — Macro hedges

Why: Tariffs are inflationary by design. Persistent trade barriers can keep PPI and import prices elevated.

• Instruments: TIPS (TIP, IPE), short-duration Treasury ETFs for liquidity, commodity exposure (copper futures, steel-related contracts, broad commodity ETFs like DBC) and futures for basis trades.
• Strategies: Buy 5–10 year TIPS as inflation insurance; use commodity futures or ETFs to hedge price risk that affects corporate margins. For investors worried about rate volatility, short-duration TIPS or floating-rate notes reduce duration exposure.
• For metal and commodity alternatives, consider specialist dealers and case studies such as boutique metal marketplaces for exposure to industrial and precious metals like copper and gold.

Practical options playbook: templates you can replicate

Below are specific, repeatable option structures to deploy based on your view.

Protective put on a sector ETF (defensive hedge)

• Use case: You own XRT (retail exposure) and fear tariff-driven margin shocks.
• How: Buy a 3–6 month put with strike ~7–10% OTM. If cost is a concern, use a put spread (buy the 10% OTM put and sell a 20–25% OTM put) to lower net premium.
• Sizing: Hedge 20–40% of notional exposure for diversified portfolios; 50%+ for concentrated single-name holdings.

Covered call on tariff winner (income and partial protection)

• Use case: You own Nucor and expect modest upside but prefer income.
• How: Sell 30–45 day calls 15–25% OTM. Roll monthly to maintain yield if you want ongoing premium collection.

Collar for balanced protection (cost-offset)

• Use case: You own a manufacturing name with uncertain short-term margin outlook.
• How: Buy a 3–6 month put (5–10% OTM) and finance it by selling a 3–6 month call (10–20% OTM). This caps upside in exchange for downside protection at a lower net cost.

Directional call spread on onshoring beneficiaries

• Use case: Expecting multi-quarter strength for equipment providers.
• How: Buy a 6–12 month call at-the-money and sell a higher strike call (10–25% OTM). This limits the cost and defines upside.

Risk management and sizing rules

1) Translate exposure to notional risk: Estimate how much revenue or margin of each holding is tied to tariffs/imports and convert that into an expected P&L vulnerability. Hedge a portion of that notional — commonly 20% for tactical protection and up to 50% for structural risk.

2) Prefer liquid instruments: Use sector ETFs (XLI, XME, IYT, XRT, SOXX) to implement hedges when single-name options are illiquid. ETF options are usually tighter and cheaper.

3) Watch put cost vs. collar tradeoffs: If implied volatility spikes on tariff announcements, buying protection becomes expensive. Collars or put spreads can offer similar protection at lower premiums.

4) Time horizon matching: Use short-term options for tactical shifts (earnings, tariff announcements) and LEAPS for structural repositioning (multi-year onshoring themes).

Monitoring checklist — Indicators that matter in 2026

• Official tariff announcements and legislative developments (newsflow can move implied vols).
• Import prices and PPI — early signs of pass-through.
• ISM manufacturing PMI and new orders — supply-chain reallocation shows here first.
• Baltic Dry Index and container rates — fast indicators of shipping stress.
• Inventory-to-sales ratios in retail and autos — buildup signals margin and markdown risk.
• FX moves: MXN strength vs. USD often signals production shifts to Mexico; CNY dynamics matter for supplier costs.

Two short case studies from late 2025 & early 2026

Case study A — Steel tariffs and domestic margins: Late 2025 tariff adjustments on certain steel categories led to immediate price rerouting. Domestic producers posted stronger-than-expected margins and inventory drawdown. Traders who owned XME and wrote short-dated calls captured both price appreciation and elevated option yields while buying 6-month puts on the broader industrials to limit macro risk.

Case study B — Retail surprise and protective puts: A mid-2025 apparel chain missed margins after a tariff escalation. Investors who had used 3-month put spreads on XRT and collars on major retail names avoided most of the drawdown and reinstated positions at lower prices. The lesson: short-dated options hedges around known policy risk windows are cost-effective.

Execution checklist — Step-by-step

1. Map your portfolio exposures to tariff-sensitive categories (imports, FX, shipping).
2. Rank holdings by sensitivity and liquidity (what is easy to hedge?).
3. Choose instruments (ETF vs single name) and option structures (put, collar, spread) by cost and horizon.
4. Size hedges based on notional risk and conviction (20–50% rule).
5. Monitor newsflow and implied volatility; adjust as the policy landscape changes.

Common mistakes to avoid

• Buying protection without sizing: small puts rarely save large concentrated positions.
• Ignoring liquidity: wide option spreads can turn a cheap hedge into a loss.
• Over-hedging: paying expensive premiums for full protection when 20–40% coverage might be optimal.
• Forgetting macro offsets: tariffs are inflationary — pair equity hedges with TIPS or commodity exposure rather than only cash.

Final actionable checklist — What to do this week

• Scan portfolio for high tariff exposure: retailers, import-heavy consumer names, and offshore manufacturing revenue >30%.
• Buy 3–6 month put spreads on the most exposed names or sector ETFs (XRT, XLY) for tactical protection around policy announcements.
• Establish long exposure to domestic materials (NUE/CLF or XME) and finance purchases by selling short-dated calls if comfortable capping short-term upside.
• Add TIPS or short-duration inflation-linked bonds (TIP) if your portfolio lacks inflation protection.
• Set alerts on tariff/legislative news, PPI, and shipping indices; re-run hedges when implied volatility changes >20% intraday.

“Trade-policy risk is now a consistent feature of the macro environment. Treat it like interest-rate risk: measure exposure, hedge the uncertain horizon, and size positions to avoid overpaying for protection.”

Closing — Positioning for a tariffs-heavy 2026

Persistent tariffs reshape winners and losers across markets. In 2026, the disciplined investor will do three things: identify direct exposures, use liquid ETFs and option structures to cost-effectively hedge, and rotate into sectors that gain pricing power from protectionist policy. Use the playbook above to translate macro uncertainty into tactical trades and durable portfolio resilience.

Actionable next step: Audit three high-exposure holdings this week, and deploy one of the hedge templates above (protective put spread or collar) with size equal to 20–40% of the estimated notional risk.

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